ACCT 320 Ch. 1-7 Final

The PCAOB was formed and instituted a mandatory quality inspection program. What has been the average audit deficiency rate range since the program started?

30 to 40%

A common requirement/effect of the commissions and contingent fees rule is:

A CPA is prohibited from accepting such a form of payment when engaged in attest services for a client

The 2010 Dodd-Frank Act includes additional incentives for whistleblowers. What is the act's effect on whistleblowing by accountants?

A CPA may report a violation of a public accounting firm's performance in an audit.

Which of the following are an affirmative defense for those accused of violating the FCPA?

A and B are both affirmative defenses

The best definition of a financial restatement is:

A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported

Fraud can be defined as:

A deliberate misrepresentation to gain an advantage over another party

An alternative practice structure can best be described as:

A form of structure where a public company provides nonattest services for a client that is also provided with attest services by an affiliate of the public company

In the ZZZZ best case, Barry Minkow was charged with:

A fraudulent insurance restoration scam

Under section 302 of the SOX the financial statement certifying officials must include in their certification that:

A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities has been created

Rest's "Four Component Model of Morality" can best be described as:

A model of the relationship between ethical action and one's level of moral development

Thorne's "Integrated Model of Ethical Decision Making" can best be described as:

A model of the role of moral development and virtue in decision making

A privity relationship means that:

A party has a contractual obligation

What is enterprise risk management (ERM)?

A process, effected by an entity's board of directors, management, and other personnel designed to identify potential events that may affect the entity and to manage risk within its risk appetite

A conflict of interest exists when:

A professional service or relationship creates a situation that might impair objective judgment

Section 404 of the Sarbanes-Oxley Act requires

A report of the company's internal control over financial reporting

Inherent risk refers to:

A. The possibility that a material misstatement will occur within the reporting company's accounting information system

Which of the following is NOT a pressure that might lead to fraud?

Ability to carry out the fraud

The primary ethical issue in United Thermostatic Controls is:

Accelerating the recording of revenue into an earlier period

Which of the following is NOT an example of a conflict of interest?

Accepting commissions in a financial planning engagement for a nonaudit client

An unacceptable threat to independence occurs when a CPA performs nonaudit services for an audit client unless the CPA:

Accepts management's responsibility for the services

Responsibility goes hand in hand with:

Accountability

When courts find accountants liable for constructive fraud, the implication is that:

Accountants may be liable for fraud even when they had no knowledge of deceit

The problem of a compliance approach in implementing standards is that it can result in:

Achieving formal compliance without considering ethical consequences

The method of ethical reasoning that evaluates actions in terms of harms and benefits is:

Act Utilitarianism

Which of the following elements is not an integral part of Rights Theory?

Act based on the consequences of one's actions on others

Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis?

Act utilitarianism

In stage 3 of Kohlberg's model, ethical reasoning is motivated by:

Acting in the best interests of others

The business judgment rule refers to:

Acting with due care and good faith

The due care principle in the AICPA code:

Addresses the quality of services performed by the CPA

A CPA can accept a gift from a client as long as:

Adequate safeguards exist to prevent any threats to compliance with the Integrity and Objectivity rule

The key element that protects an auditor against common law liability is:

Adherence to generally accepted auditing standards (GAAS)

The ethical conflict Alex is facing in the FDA Liability Concerns can be best characterized as:

Alex wants to do the right thing by consumers of his salad oil products but Michael objects based on his cost benefit analysis.

The Independence Principle in the AICPA Code applies to:

All CPAs who render attestation services

A "particularized" allegation requires establishing: 1) Strong circumstantial evidence of conscious misbehavior 2) Strong circumstantial evidence of recklessness 3) Facts showing the defendant had both motive and opportunity to commit securities fraud 4) All of the above

All of the above

Ethical conflicts for CPAs in business can occur when: 1) Obstacles exist to complying with professional and legal standards 2) Relationships exist with vendors 3) Threats from higher levels of management create constraints to providing accurate and reliable financial statements 4) All of the above

All of the above

In the Harvard Cheating scandal case, using ethical reasoning who is at fault for the situation? 1) The professor 2) Teaching assistants 3) Students who cheated 4) All of the above

All of the above

Jodie Fisher's allegations of sexual harassment are made believable due to Mark Hurd's: 1) Conflict of interests 2) Misuse of company assets 3) Inaccurate expense reports 4) All of the above

All of the above

Misstatements in the financial statements can result from: 1) Errors 2) Fraud 3) Illegal acts improperly recorded 4) All of the above

All of the above

Pfizer was investigated by the SEC for violating the Foreign Corrupt Practices Act (FCPA) because it allegedly: 1) Made improper payments to foreign officials to obtain regulatory and formulary approvals 2) Made improper payments to foreign officials to obtain sales 3) Made improper payments to foreign officials to obtain increased prescriptions for the company's pharmaceutical products 4) All of the above

All of the above

The PCAOB rules prohibit auditors from: 1) Providing certain aggressive tax shelters to their public company audit clients 2) Providing tax services to members of the audit client's management who serve in financial reporting oversight roles 3) Providing tax preparation and planning services for public company executives 4) All of the above

All of the above

The auditors in the Tier One Bank case were investigated by the SEC because it: A) Failed to obtain sufficient competent evidential matter to support audit conclusions B) Failed to exercise the appropriate level of care in its audit C) Failed to exercise the proper degree of professional skepticism D) All of the above

All of the above

The credibility standard in the Statement of Ethical Professional Practice of the IMA requires that an accounting professional should: 1) Communicate information fairly and objectively 2) Disclose all relevant information that might affect the intended user's understanding of the reports, analyses or recommendations 3) Disclose delays or deficiencies in information, timeliness, processing or internal controls in conformance with organization policy and the law 4) All of the above

All of the above

Under the Securities Act of 1933, accountants who assist in the preparation of the registration statement are civilly liable if the registration statement: 1) Contains untrue statements of material fact 2) Omits material facts required by statute or regulation 3) Omits information that if not given makes the facts stated misleading 4) All of the above

All of the above

The Private Securities Litigation Reform Act imposes additional requirements on public companies reporting to the SEC and their auditors when: 1) The illegal act has a material effect on the financial statements 2) Senior management and the board have not acted properly to correct for the act 3) The failure to correct for the action is reasonably expected to warrant a departure from the standard audit report 4) All of the above are additional requirements

All of the above are additional requirements

The stakeholder view emphasizes the obligations of management to:

All parties impacted by corporate decisions in a significant way

The Rosenblum case ruling was of concern to the accounting profession because it implied that:

All possible third party users of financial statements must be anticipated

Sally is the only student from a foreign country in an Auditing class. On the day of the midterm exam, Sally asks the teacher whether she could use a dictionary to translate English words to her native tongue so she can better understand the questions. What do you think the instructor should do if she follows the ethical principle of justice?

Allow Sally to use the dictionary since she is at a disadvantage

In the Racially Charged Language case, which of the following is not one of the EDI initiatives discussed in the case:

Allow flyers using racial slurs

Which of the following elements does NOT make up an integral part of what is meant by "ethics"?

Always follow the law

Madison is in the process of gathering evidence to support the audit opinion on Jefferson & Adams, Inc. She's a new staff accountant and wants to make sure she exercises the appropriate level of professional skepticism. Madison asks for your advice as the senior on the audit. How best might you guide her as to the skepticism issues?

Always review the evidence you gather to assess persuasiveness

What is "Operation Broken Gate?"

An SEC initiative to identify auditors who neglect their duties and the required auditing standards

An ethical corporate culture includes:

An explicit statement of values.

Professional skepticism can best be defined as having:

An inquiring mind and suspension of belief

The SEC has increased focus on identifying and penalizing misstatements in public company financials. What is one method that the SEC is using to identify companies, CEOs, and CFOs that are misstating financial statements?

Analyzing patterns of internal control problems even absent a restatement of the financials.

What is the significance of the Menendez v Halliburton, Inc.?

Appeals court panel ruled that Menendez (an internal accountant) had been retaliated against for blowing the whistle.

Jason is the fastest worker on the audit of a company for the firm Zits LLP. Other Zits workers take twice as long to complete the equivalent amount of work as Jason. One day Jason is approached by the other workers and is asked to slow down "You are exceeding the time budget for the audit and making the rest of us look bad," said one staff member. From an organizational, ethical point of view, the best thing for Jason to do is:

Approach the supervisor to discuss the pressure of fellow staff to slow down on doing audit work

Who linked earnings management to an excessive zeal to project smoother earnings from year to year that casts a pall over the quality of the underlying numbers?

Arthur Levitt

The "particularity" provision in the PSLRA allows a plaintiff to:

Assert scienter

Which of the following is NOT required of management under Section 302 of the SOX?

Assess each internal control deficiency's impact on the audit report

Under the Sarbanes-Oxley Act, the auditor's responsibility with respect to internal controls can best be stated as:

Assess management's report on internal controls

The first step for an auditor who concludes an illegal act exists is to:

Assess the impact of the illegal act on the financial statements

According to the ACFE survey, the most common type of occupational fraud scheme is:

Asset misappropriation

Under the Sarbanes-Oxley Act, which of the following bodies must contain members that are 100% independent of management?

Audit committee

Audit procedures are different than audit evidence because:

Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met

The PCAOB addresses audit results and require the:

Auditor's determination of whether the auditor has obtained sufficient appropriate evidence

The unique aspect of auditors' legal liability in the Rosenblum v. Adler ruling is:

Auditors could be held liable for ordinary negligence to all reasonably foreseeable third parties

Which of the following is NOT one of the four stages in an audit-related dispute?

Auditors legal liability leads to financial settlement

In Grant Thornton v. Prospect High Income Fund, the Texas Supreme Court held:

Auditors were not liable for accurate accounting to anyone who reads and relies upon the audit report

In gathering audit evidence, the accessibility of information may be a factor thereby influencing which judgment trigger?

Availability

Which of the following characteristics is NOT part of behaving with empathy?

Being loyal to one's friends

Which of the following characteristics does NOT describe the importance of integrity in decision making? 1) Acting out of moral principle 2) Being loyal to one's superior 3) Having the courage to do the right thing 4) Not subordinating professional judgment to others

Being loyal to one's superior

Under the IMA's standards of ethical practice, an accounting professional can consider informing authorities or individuals not employed by the organization when an ethical dilemma occurs about an accounting or financial reporting matter that remains unresolved if he/she:

Believes there is a clear violation of the law

An example from the book of someone who may have experienced cognitive dissonance is:

Betty Vinson

What non GAAP accounting method did Tony Menendez cite in blowing the whistle on Halliburton?

Bill and hold revenue recognition

A payment made to induce a foreign government official to do something they might not otherwise be required to do is a(n):

Bribe

The TransWays' case deals with legal liabilities due to:

Bribery of foreign government officials

Each of the following is a common revenue recognition device to manage earnings except:

Buy and hold

Each of the following is a finding of a survey of CFOs about their perceptions of earnings quality except:

CFOs estimate that income increasing and income decreasing devices to manage earnings show a 50:50 split

In the Capitalization versus Expensing case the main ethical issue is whether Gloria Hernandez should:

Capitalize or expense $1 million of expenditures

In the Loyalty to the Boss case, what is the primary ethical issue?

Capitalizing expenses as inventory

Section 302 of the Sarbanes-Oxley Act requires that management:

Certify the financial statements

The Tax Shelters case deals with:

Changing culture in the tax department of a CPA firm

Which of the following partnerships that Enron created eventually lead to its demise?

Chewco

The QSGI case raises questions regarding the actions of the CEO and chairman of the board who:

Circumvented internal controls for inventory and falsified records.

What argument can be made that SOX may not be effective in reducing fraud?

Civil and criminal penalties are not effective in preventing financial fraud

Which of the following is NOT a component of the KPMG Professional Judgment Framework?

Clarify issues and conclusions

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor is most likely to withdraw from the engagement when the:

Client refuses to take the remedial steps deemed necessary by the auditors

Which statement is correct with respect to a CPA's ethical obligation to return client books and records and CPA workpapers?

Client-provided records in the custody or control of the CPA should be returned to the client at the client's request

Professional judgment is influenced by:

Cognitive biases

The legal precedent that evolves from legal opinions issued by judges in deciding a case and guides judges in deciding similar cases in the future is referred to as:

Common law

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as:

Communicate to the appropriate level of management both material and immaterial amounts of fraud that are detected

In the Hertz fraud, the company tried to explain its use of non-GAAP financial measures by:

Comparing the validity of the amounts to pre-tax GAAP income

The 2016 State of Compliance Study of PwC indicates that:

Compliance and ethics functions have become more visible with their Board of Directors and senior leaders

An unusual aspect of the Green Mountain case is it included:

Conference calls that provided earnings guidance to shareholders and analysts were used to mask a financial fraud

Which of the following is NOT an underlying trait of character of an effective leader identified by Johnson?

Confidence

An accountant who blows the whistle on financial wrongdoing by his/her employer by going outside the entity violates:

Confidentiality

The tendency for decision-makers to put more weight on information that is consistent with their initial beliefs or preferences is called the:

Confirmation tendency

The statement made by Lynn Turner, former SEC chief accountant, "Are the auditors going to serve management, or are they going to serve the best interests of the investing public?", refers to concerns about:

Conflict between professionalism and commercialism

The ethical dilemma for Hailey in "Taxes and the Cannabis Business" case can best be described as a:

Conflict between reporting cash sales and ignoring them

The biggest problem in applying virtue theory to decision making is:

Conflicts between virtues may make decision making more difficult

The growth in consulting services raises questions about which professional obligation?

Conflicts of interest

Which of the following characteristics does NOT describe the behavior of Cynthia Cooper in the WorldCom fraud?

Conformity

When applying Utilitarianism to judge actions, what is the only thing that matters?

Consequences

Teleology deals with A. Consequences of actions B. Fairness to others C. Respecting the rights of others D. Following prescribed virtue characteristics

Consequences of actions

Deloitte suggests the quality of earnings from the audit perspective should consider all of the following except:

Consider large variances in an accounting estimates compared with actual determined amounts

George is in the middle of a high stakes poker game when he notices what he thinks is cheating by another player. It appears to George that this player took a card from his lap and switched it with a card that he was dealt. If George is a utilitarian thinker, he should:

Consider what might happen if he accuses the player of cheating and he is wrong

When an auditor acts so carelessly in the application of professional standards that it implies a reckless disregard for the standards of due care is referred to as:

Constructive fraud

The relationship between the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy and rule of law is known as:

Corporate governance.

The ancient Greeks thought of the virtues as characteristics of behavior that:

Could lead to a good life

What is an important part in making an ethical choice, according to Kidder?

Courage

In the Loyalty and Fraud Reporting case, Ethan Lester pressured his friend Vick Jensen to:

Cover up Ethan's fraud

The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except:

Crawford followed the GAAP methods that Deloitte suggested

Which of the following is NOT an earnings management technique?

Creating an allowance for uncollectible accounts and adjusting it at year end

Which of the following summarizes the essence of field work standards of GAAS?

Criteria for judging the quality of audit work

The Olympus case was unique from a corporate governance perspective because it deals with:

Cultural differences between Japanese management and western style of management

In establishing that the third party relied on the financial statements, one factor that works against plaintiffs' establishing such reliance is:

Damages or loss suffered by the plaintiff would have occurred regardless of whether the audited financial statements were misstated

A danger of situational ethics is that it can be used to rationalize a wrong-doing. Such rationalizations may be seen in all of the following examples except:

David Walker's actions at the Government Accountability Office

Which of the following is NOT one of the levers Larry Davis might use to convince Paul Jones about the rightness of his point of view in the Ace Manufacturing case discussed in the chapter?

Davis can threaten to go to the SEC to protect shareholder interests if Paul agrees to pay back the amounts taken out of the company and correct the accounting

Which of the following authors(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive others?

Dechow and Skinner

Which of the following is NOT a common judgment tendency?

Decision making tendency

Which of the following was not a technique used by Enron to manage earnings?

Deliberately overstated the allowance for uncollectibles and adjusted it downward in future years

Aristotle believed that __________ always preceded the choice of action.

Deliberation

The motive of "duty" is most associated with _________.

Deontology

Which of the following is NOT addressed in the Diamond Foods case?

Depreciation of almond trees

The role of a leader in an organization is to:

Determine organizational climate and define norms

Which of the following is NOT a requirement of Section 10A of the Securities Exchange Act of 1934 for auditors of public companies with respect to illegal acts?

Determine whether management participated in the illegal act

The reporting requirements for fraud are detailed in Section 10A of the Securities Exchange Act of 1934. Which of the following steps are NOT part of a prescribed process that should be followed in deciding whether to report fraud?

Determine who is responsible for the fraud.

Which of the following is NOT an element of internal control over financial reporting?

Developing a code of conduct and whistle-blowing procedures

Kevin Lowe's ethical dilemma in the Eating Time case can best be described as whether to:

Devote time on an audit and not charge it to the job

The SEC requires stealth restatements to be:

Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A

Under certain situations, internal accountants are eligible to become Dodd-Frank whistleblowers. Which of the following is not one of those situations?

Disclosure to the SEC is needed to prevent "substantial injury" to the audit firm

The main difference between a discretionary and nondiscretionary accrual is:

Discretionary accruals are items that management has full control over

The best restatement of Kant's categorical imperative is:

Do to others as you would have everyone do unto you

One feature of a corporate governance system commonly found outside the U.S. is:

Dual system of boards of directors

In the U.S., if the auditor can demonstrate having performed services with the same degree of skill and judgment possessed by others in the profession, it can be said to have exercised:

Due Care

Which of the following is NOT an ethical or legal responsibility of officers and directors?

Duty of Fair Pay

The level of care expected of a reasonable person under similar circumstances in meeting one's fiduciary duty is called:

Duty of care

What is a worrisome consequence under the joint and several liability principle?

Each negligent party could be held liable for the total of damages suffered

Which of the following has NOT been found to be a measure of a non-GAAP financial metric?

Earnings before depreciation and amortization

The concept that earnings management might align with conservative versus aggressive reporting is known as the:

Earnings continuum

If a company is managing its earnings, which of the ethical theories are they most likely following?

Egoism

Jane finds a material misstatement while auditing a client's accounts receivables. Her senior tells her to ignore the misstatement so that the client does not get upset. Jane wants to be viewed as a team player in order to advance in the firm so Jane follows her senior's instructions and ignores the misstatement. Which ethical theory did Jane use to make her decision?

Egoism

When making a donation at the local Goodwill, Martha tells the clerk that her old computer is in perfect working order when she knows it is not, just so she can deduct more on her taxes. Which theory best describes Martha's behavior?

Egoism

Individuals that ignore the moral point of view and take advantage of others in an effort to meet their own short-term objectives can be classified as:

Egoists

The Full Disclosure: The Case of a Morally Challenged AP clerk involves the issue of:

Embezzling money by processing fictitious invoices

Which of the following characteristics is NOT part of the behavioral approach, Giving Voice to Values?

Employs traditional philosophical reasoning

Which of the following was not one of the recommendations that Uber implemented after charges of sexual harassment were made:

Encouraging quid pro quo.

The method of ethical reasoning that deals with making decisions after considering the interests of others is:

Enlightened Egoism

The House Subcommittee on Oversight and Investigations made its recommendations after looking into failures at each of the following companies except:

Enron

Treating others fairly encompasses treating them:

Equally, impartially, and openly

Which of the following elements do NOT have to be proved once a plaintiff has established the ability to sue under rule 10b-5?

Error by auditor led to plaintiffs' loss

An example of a management participation threat is:

Establishing and maintaining internal controls for the client

You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are considering whether this is a company that has a culture you want to be part of. Which of the following best characterizes the ethical issues of concern?

Ethical Dissonance

The relationship between legal and ethical can best be expressed as:

Ethical behavior requires us to do more than required by the law and less than the law allows

In Thorne's model of ethical decision making, the instrumental virtues relate to:

Ethical character

The 2013 Ethics Resource Center National Business Ethics Survey indicates each of the following results with respect to how employees view the ethics and ethical practices of organizations they work for except:

Ethical cultures are weaker

What are the five elements of the framework for understanding ethical decision making in business?

Ethical issue intensity; individual factors; organizational factors; opportunity; and business ethics intentions, behavior, and evaluations.

In the Pinto case, Ford relied on which approaches to ethical reasoning to decide on a course of action with respect to the faulty gas tank placement:

Ethical legalism and utilitarianism

Decisions that are made based on the underlying cultural factors can be best characterized by:

Ethical relativism

Personal values link to:

Ethical sensitivity and judgment

Which of the following is NOT something external auditors are expected to do in looking for fraud?

Evaluating management's commitment to serve the public interest

The Restatement (Second) of Torts Approach:

Expands an accountant's legal liability to third parties identified by the client as intended recipients of work

Which of the following was the most frequent anti-fraud control identified in the 2014 ACFE Global Fraud Survey?

External audit of financial statements

Which of the following was not a finding of the ACFE Report to the Nation on Occupational Fraud?

External auditors discover about 15 percent of the frauds

All of the following are in a position to commit fraud except:

External auditors who audit the financial statements

A payment made to foreign government officials to ensure that they do what is expected given their job requirements can be characterized as a(n):

Facilitating Payment

One reason independence in appearance is used to evaluate threats to independence is:

Factual independence is based on unobservable matters

In the Medicis audit, the auditors failed to complete all of the following except:

Failed to issue an unqualified opinion

The best explanation why the fraud at Tyco was not discovered and acted on is:

Failure of the corporate governance system

When an employee is given a job evaluation, he has a right to expect:

Fair evaluations

Which of the following is NOT a likely rationalization a student might use to justify cheating on an exam?

Fair treatment

Which of the following is NOT an element of trustworthiness according to the Six Pillars of Character?

Fairness

Role expectation or approval from others is a motive for doing right in which stage of Kohlberg's moral reasoning?

Fairness to others

Which of the following was not true according to the Enron case?

Fastow developed the concept of buying up oil and gas companies to establish SPEs

In stage 1 of Kohlberg's model, ethical reasoning is motivated by:

Fear of punishment

An ethical climate is enhanced by all of the following except:

Fear of retaliation

In FCPA matters, the following would be considered effective compliance program policies except:

Few resources dedicated to compliance of standards Correct

An audit engagement letter:

Formalizes the relationship between the auditor and the client for a specific engagement

The difference between errors in the financial statements as compared to fraud is:

Fraud is always an intentional act designed to deceive another party

The primary accounting issue in the Wetherford International case is:

Fraudulent inflation of earnings using deceptive income tax accounting

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Gathering sufficient audit evidence to warrant an opinion

What should be the first step in decision making when faced with an ethical dilemma?

Get the facts surrounding the problem

A strong and effective internal control environment can be enhanced by:

Giving the internal auditors direct and unrestricted access to the audit committee

Kelly and Jordan are writing a term paper together on the concept of "faithful representation" in the financial statements. Kelly is assigned the task of defining it in the context of an amount being an estimate. Which of the following statements should NOT be used by Kelly in her description?

Good faith attempt to gather evidence to support the amount

Kay and Lee performed an audit required for Holligan Industries to extend a loan with Second National Bank & Trust. Kay and Lee may be liable for:

Gross negligence to the bank that loaned money to Holligan because the firm did not discover improper accounting for receivables and inventory

Common judgment traps include:

Group think, judgment triggers, and a rush to solve problems

Jacob just joined the firm of Gordon & Towns LLC. Prior to beginning his first group audit assignment, Jacob asks to meet with his mentor, Isaac. He asks Isaac how making judgments in an audit team setting differs from running an audit oneself. What is the best advice for Isaac to give to Jacob?

Groups are prone to making quick decisions in order to avoid conflict

The global code of ethics for the accounting profession is called:

Handbook of the Code of Ethics for Professional Accountants

Which of the following is not an element of an ethical corporate culture?

Having an effective external audit

George has been asked by his audit client to provide income tax services including tax planning. Prior to providing such services, George should be certain that:

He assesses threats to independence

In the Cleveland Custom Cabinets case, the owner of the company thought it was all right to manipulate the financial statement numbers primarily because:

He was the sole owner of the company and controlled the board of directors

Which of the following authors(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings?"

Healy and Wahlen

Which of the following might NOT describe Heinz's thought process in deciding whether to steal the drug if he were at stage 6?

Heinz should not steal the medicine, because the scientist has a right to fair compensation.

In the "Heinz and the Drug" case described in the chapter, if Heinz was reasoning at stage 5 he might decide to steal the drug based on which of the following reasoning?

Heinz should steal the medicine, because everyone has a right to live, regardless of the law.

In the Miller Energy Resources case, the SEC found that:

Held the auditors liable because they failed to gather sufficient, competent evidential matter to assess the value of assets on the financial statements.

In the Advanced Battery Technologies case, the opinion of the court:

Held the auditors not legally liable because the plaintiff could not plead with particularity that the audit work was so deficient as to amount to no audit at all

In the Gateway Hospital case, Kristen's best argument to counter the reasons and rationalizations Troy might give for requesting an extra days' reimbursement is?

Her loyalty is to the hospital and not Troy.

The ethical dissonance model looks at the ethical fit of the organizational and individual values. The optimal fit for an individual with high individual ethics would be:

High-High

What is the one virtue that people should want in a boss, to trust a boss?

Honesty

Who distinguished between earnings manipulation and earnings management?

Hopwood et al.

In its investigation of ZZZZ Best, the House Subcommittee on Oversight and Investigations looked into:

How the company was able to create 80% or more fictitious revenue

In the Parable of Sadhu case, Bowen T. McCoy's friend Stephen summed up the dilemma by saying:

I feel that what happened with the sadhu is a good example of the breakdown between the individual and corporate ethics

Which of the following is an element of the introductory paragraph of an auditor's report under AICPA standards?

Identifies the entity, financial statements being audited and time period

Which of the following is not a consideration in determining a measure of materiality?

Importance of audit committee in the organization

The Monsanto case centered around the:

Improperly accounting for rebates

Which of the following is not an element of COSO Enterprise Risk Management?

Improving deployment of information technology

The confidentiality standard in the AICPA code provides a blanket exception to the rule in each of the following situations except:

In response to a successor auditor's request

The report provided by PwC to Billy Muldoon, CFO, identified which material weaknesses?

Inadequate controls over financial reporting

All of the following are ICFR-related audit deficiencies in PCAOB inspection reports except:

Inadequate qualifications of auditors

Cognitive dissonance creates a problem that can be described as:

Inconsistency between thoughts and beliefs and our intended actions

The framework of COSO's Enterprise Risk Management can best be characterized as:

Incorporate enhanced corporate governance into internal control principles

Ty is a rising star at Texas State Country & Western Stores. He is the controller of the company. His wife, Rosie, is the lead auditor of the CPA firm that examines Country & Western's financial statements and issues an audit opinion. Given the nature of the relationships, Rosie would violate what ethical standard if she is allowed to conduct the audit:

Independence

Which rule of professional conduct in the AICPA Code does not apply both to internal and external accountants who are CPAs and members of the Institute?

Independence

Which of the following is NOT a safeguard to mitigate threats to compliance with the rules for CPAs in business or reduce them to an acceptable level?

Independent external audit

Professional skepticism links to professional judgment through the ethical standards of:

Independent thought, objectivity, and due care

Ethics rules in the AICPA Code apply to:

Individual CPAs who are licensed by state boards of accountancy, licensed accounting firms, and certain members of alternative practice structures

The accounting issue(s) in the Crazy Eddie case were:

Inflating inventory and net income

Janice is a staff accountant in the accounting firm of Obama and Biden. She is assigned to the audit of HealthCare Associates. On the very first day Janice noticed that the accounting manager of the client took money out of the petty cash fund and put it in his pocket. The best action for Janice to take is:

Inform her immediate supervisor of what she observed

Eddie paid an $8 restaurant check with a $10 bill. The waitress gave him $12 back. The most ethical action for Eddie is to:

Inform the waitress of her overpayment

Kelly is the controller of a small company. One day the CFO comes in and tells her to lower the estimate of uncollectible accounts receivable. Kelly insists her numbers are correct as is. The CFO tells her it will mean her job at the company if she doesn't go along with the smaller estimate. The primary virtue that would enable Kelly to resist the pressure to manipulate the number is:

Integrity

The principle of ethical behavior in the AICPA Code that asks questions directly related to ethical courage is:

Integrity

What is the common characteristic of Aristotle's virtues and ethical standards for CPAs?

Integrity

Internal rewards of accounting practice include:

Integrity and Excellence

A defendant is liable for injuries when he acted with willfulness. Another term for willfulness is:

Intent

An example of a self-review threat for CPAs in business is:

Internal auditor accepts work she previously performed in a different position

Which of the following is not a component of the Framework for Understanding Ethical Decision Making in Business?

Internal controls

Virtue ethics emphasizes development of good habits of character. What should be the greatest reward of practicing good habits of character, according to MacIntyre?

Internal rewards

What was the result of the annual inventory audit of the inventory shrinkage and improper accounting at Walmart?

Inventory shrinkage decreased by 90 percent

The most important duty of public accounting is to the:

Investing Public

Typically, when a going concern issue exists the auditor should:

Issue an unmodified opinion with an emphasis-of-matter paragraph

One result of earnings management is:

It brings into question the quality of earnings

The biggest problem in implementing a utilitarian approach to decision making is:

It can be difficult to weigh all the consequences of actions

Audit documentation is critical to evidence gathering because:

It demonstrates professional skepticism

Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation, but Steve does not. What statement might Steve make to best support his point of view?

It depends on whether the misstatements were made deliberately

Respect is an important character of behavior because:

It encompasses attributes of how we should treat others

A unique aspect of Johnson & Johnson's Credo is that it:

It is an aspirational statement rather than the typical "thou shalt not" form of a code of ethics

What is the SEC's position on companies that communicate with investors on social media?

It is legal so long as companies inform investors which outlets they intend to use

In his evaluation of Kidder's model, Johnson points out that:

It is not easy to determine who has responsibility for solving a problem

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when:

It protects the auditor's accounting for fraud and illegal acts

Backdating of stock options is unethical because:

It purposefully manipulates the option criteria that determine their value

The biggest problem in implementing a rights approach to decision making is:

It relies on moral absolutes

In the Statement of Financial Accounting Concepts (SFAC) No. 8. SFAC No. 8 the position about materiality is that:

It should be determined by how the magnitude of the item would be viewed by a reasonable person

Why don't auditors prepare financial statements, as well as audit them?

It would be a conflict of interest and violate ethical standards

On July 1, 2015, the SEC charged Deloitte & Touche with violating auditor independence because:

Its consulting affiliate kept a business relationship with a trustee serving on the board of three funds Deloitte audited

Which of the following is NOT a pillar of character according to the Josephson Institute?

Judgemental

The ethical reasoning method that is based on treating equals, equally and unequals, unequally is:

Justice

The CPA firm that became involved in tax shelter controversies with the IRS and settled the case for $456 million to prevent the firm's criminal prosecution is:

KPMG

If one's reputation is tainted it may create a: A. Conflict of interests B. Loss of independence C. Lack of trust D. All of the above

Lack of trust

Some critics claim the usefulness of the audit report is limited because:

Language in the audit report relies on subjective evaluations such as what is meant by "reasonable"

One of the differences between the ethical obligations of CPAs and lawyers is:

Lawyers are obligated first and foremost to the client's interest while CPAs are obligated to the public interest

Section 201 of SOX provides that all of the following services may not be performed for attest clients except:

Legal services related to the audit.

According to the ACFE Global Fraud Study, which of the following was the most common behavioral indicator of fraud?

Living beyond means

Bob is being pressured by his superior to go along with improper accounting and told he is expected to be a team player. Which of the following statements best characterizes those expectations?

Loyalty

Objectivity requires that a CPA should:

Maintain a mental attitude of intellectual honesty and impartiality

The FCPA requires all SEC registrants to have each of the following except:

Maintain information systems that prevent fraudulent activities that violate the FCPA

Which of the following is NOT a common audit deficiency in PCAOB inspections?

Maintaining an independent audits

Which of the following is least likely to be used by a manager to set the right tone to foster ethical leadership?

Make decisions that do not harm others

Which of the following statements best reflect the ethical obligation of CPAs with respect to working with outside advertising agencies to market professional services for the CPA?

Make sure the agency does not do anything that would put you in violation of the ethics rules

A criticism of the Kohlberg model is that it:

Makes deontological ethics superior to other ethical perspectives.

Which of the following is NOT considered "earnings management?"

Management emphasizes achieving long-term results to meet financial goals

Safeguards implemented by the attest client include each of the following except:

Management participation in the client by the attest firm

CPAs in business face threats to independence just as CPAs in public practice. Which of the following threats do not exist for CPAs in business?

Management participation threat

Section 302 of the Sarbanes-Oxley Act requires:

Management's certification of the financial statements

Which technique was used by both WorldCom and Waste Management to manage earnings?

Manipulating asset net valuation amounts to minimize operating expenses for a period

In surveys of managers, which technique to manage earnings was considered most acceptable?

Manipulating operating decisions

Auditors are responsible to detect and correct errors when they are:

Material

The name of the term used to describe deficiencies in internal control over financial reporting where there is a reasonable possibility that a material misstatement will not be detected on a timely basis is called:

Material weakness

Steve is in charge of accounting for the purchase of equipment at Cal Works, Inc. The company has a policy that all expenditures greater than $1,000 (1% of total expenditures) have to be capitalized; less than $1,000 expensed. Steve is under pressure to report high earnings. He takes one $600 and $900 expenditure, adds them together, and records a capital expenditure for $1,500. Which of the following reasons and rationalizations might Steve use for his action:

Materiality

Which of the following is not part of the fraud triangle?

Materiality

Which of the following is not correct about materiality?

Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality

Has SOX accomplished its intended goal of reliable financial reporting by public companies?

Maybe, as laws are needed but they serve as only a minimum standard of ethical conduct and may not lead to ethical conduct.

The case which deals with assigning a quality review partner to an audit is:

Medicis Pharmaceutical

Motivations to smooth net income over time include each of the following except:

Minimize overall taxes

An example of fraudulent financial statements is:

Misrepresentation of events, transactions, and other significant events in the financial statements

Which of the following is the most likely reason for an auditor to issue an adverse opinion?

Misstatements that are material and pervasive

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification?

Misstatements that are material but not pervasive

As a manager in her firm, Lucy concerns herself with the effectiveness of internal controls. Her main focus is how efficient and effective the company's internal controls are over time. Which component of internal control is Lucy engaging in?

Monitoring

Which of the following is NOT an element of the corporate governance system?

Monitoring by top management

In reference to Rest's four-component Model of Morality, which component reflects an individual's willingness to place ethical values ahead of non-ethical values that relate to self-interest?

Moral Motivation

With respect to the importance of moral issues in business, Thomas Jones posited that:

Moral issues of high intensity are more pronounced than those of low intensity

Carpendale suggests that moral reasoning is viewed as a process of coordinating all perspectives involved in a moral dilemma. Moral reasoning takes place in which of the following steps in Rest's Model?

Moral judgment

Statement on Standards for Tax Services No. 1 establishes as a basic principle of providing tax services that the CPA:

Must have a good faith belief that the tax return position has a realistic possibility of success if challenged by the IRS

Which term refers to a person acting in a way that breaches their duty to another that causes harm?

Negligence

The legal liability of the auditors in the Joker & Wild case can best be described as resulting from:

No liability because the auditor's performed their duties in accordance with GAAS

Which of the following would eliminate the ability of a plaintiff to prevail under Rule 10b-5?

No reliance by the plaintiff on the financial statements

Which of the following is NOT a valid defense to legal liability under the Securities Act of 1933?

Non-negligence defense

Accruals that are based on estimated changes in fundamental economic performance of the firm are:

Nondiscretionary accrual

CPAs can advertise and solicit clients as long as such practices are:

Not conducted in a misleading or deceptive manner

To prevent subordination of judgment, a CPA should evaluate threats to:

Objectivity and Integrity (term 50)

The difference between occupational and financial statement fraud is:

Occupational fraud is generally committed by employees

Misstatements in the financial statements are most likely to occur when there are:

Omission of notes to the financial statements

Rule 10b-5 of the Securities Exchange Act of 1934 makes it unlawful for a CPA to engage in each of the following activities except:

Omit a material fact necessary for the financial statements to present fairly financial position, results of operations, and cash flows

How long do management and the audit committee have to act if the independent auditor reports possible illegal acts to them?

One business day

Which of the following is true of the relationship between civility and ethics?

One can be both civil and unethical.

James Rest's model of ethical action involves four components inherent to the ethical decision-making process. Which of the following relates to a person's moral judgment of what ought to be done?

Outcome of one's prescriptive reasoning

Auditors need to be attuned to the red flags that fraud may exist because:

Overly-aggressive accounting and outright manipulation of earnings may exist

"Cookie jar reserves" can best be described as:

Overstating or understating allowances and reversing amounts in the future to smooth out net income over time

Cynthia Cooper's actions in the WorldCom case can be best characterized as demonstrating:

Persistence and courage

The insider trading case against Thomas Flanagan focused on:

Personally trading in securities of audit clients after receiving confidential information

Ethical relativism can best be described as a:

Point of view that morality is relative to the norms of one's culture.

When Sally is asked why she should share her toys with her sister, she responds by saying "Because my mom says I have to and if I don't I'll go to time-out." In which stage of moral development is Sally?

Preconventional Morality

The main accounting issues in the Nortel Networks case were:

Premature revenue recognition and hidden cash reserves

An example of a self-review threat is:

Preparing source documents used to generate the client's financial statements

Which of the following is NOT an example of a conflict situation for CPAs in business that may lead to subordination of judgment?

Preparing the financial statements and auditing the same work

The term "true and fair view" tends to be a replacement for _______ used in the U.S.

Present fairly

A common ethical problem where there is an unrealistic expectation to meet expected results and the ends justifies the means can be best described as:

Pressure to maintain the numbers

Commercialism versus Professionalism raises issues about:

Pressures to compromise ethical values that exist in alternative practice structures

Organizational ethics can be thought of as:

Principles and standards of behavior that guide business decisions

Which of the following is NOT one of the most relevant sources of civil liabilities for auditors charged with failing to adhere to the requirements of the laws in carrying out professional obligations?

Private Securities Litigation Reform Act of 1995

Because of the risk of material misstatement due to improper management representations, an audit of financial statements in accordance with GAAS should be performed with:

Professional skepticism

The Private Securities Litigation Reform Act of 1995 applies the practice of _______ to auditor liability determinations.

Proportionate liability

The SEC's position on independence can best be characterized as:

Proscribing certain business relationships with the client

With respect to whistleblowing, the Sarbanes-Oxley Act:

Protects employees of publicly traded companies who provide evidence in fraud cases

On January 24, 2014, KPMG agreed to pay $8.2 million to settle charges by the SEC that the firm violated auditor independence rules because it:

Provided certain nonaudit services to affiliate companies whose books KPMG was auditing

The insider trading case against Scott London focused on:

Providing confidential information about audit clients to a friend

To whom does the CPA owe ultimate allegiance in carrying out professional obligations?

Public interest

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:

Qualitative factors may cause quantitatively small misstatements to become material Correct

Which of the following summarizes the essence of general responsibilities of GAAS?

Quality of professionals that perform an audit

Proper tone at the top includes all of the following except:

Rarely enforcing the code of conduct

Thomas Jones's research looked at the characteristics of a moral issue to develop the moral intensity model. The model includes six dimensions. Which of the following are NOT included in those dimensions?

Reasoning and values-based decision-making

Which term means a person knew or should have known that their actions were likely to cause harm?

Recklessness

An example of revenue overstatement is:

Recording gross, rather than net, revenue

Financial shenanigans involving recording revenue too soon includes all of the following except:

Recording revenue after customer acceptance

Which of the following was NOT one of the schemes used by Beazer Homes to manipulate its earnings?

Recording revenue from roundtrip transactions prematurely

Which of the following is not a fraud method to overstate revenues?

Recording sales based on F.O.B. shipping point

All of the following are examples of "Boosting Income with One-Time Gains" except:

Recording sales that lack economic substance

All of the following are examples of "Recording revenue too soon or of questionable quality" except:

Recording sales that lack economic substance

Examples of improper asset valuation includes all of the following except:

Recording sales that never took place

Which of the following is an element of ERM?

Reducing operational surprises and losses

Which of the following connect the integrated ethical decision-making process with Rest's framework?

Reflect on the moral intensity and virtues that enable action and ethical intent

Assume your values conflict with what you are being asked to do. Under the Giving Voice to Values methodology which of the following statements reflects the thought process you might have in developing a game plan to voice your values?

Reflect on the objections that might be raised to your intended expressed views

Daniel Kahneman's System 1 thinking is described by all of the following except for:

Reflective

Your manager asks you to "cook the books" to support a loan application at the local bank. The manager insists it is a one-time request. What should you do?

Refuse to go along with the request

Wanda is faced with an ethical dilemma. She knows her supervisor, the CFO, wants to accelerate the recoding of revenue to an earlier period to "make the numbers," but Wanda is convinced this would violate GAAP. If Wanda reasons at stage 4 of Kohlberg's model she is most likely to:

Refuse to record the transaction as desired by the CFO

The Securities Act of 1933:

Regulates the initial offering of securities

The primary issue in the Rooster, Hen, Footer and Burger case is:

Related party transactions

There are several aspects of the Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?

Related-party transactions require disclosure in the notes

The title of the PCAOB auditor's report is:

Report of the Independent Registered Audit Firm

The Securities and Exchange Act of 1934:

Requires the filing of audited annual statements and reviewed quarterly statements

Compensation of executives has soared over the last forty plus years to more than 271 times the pay for average workers. Remedies to rein in executive compensation include all but:

Restrictions by the law as to the maximum total compensation allowable

The key fraud issue in the Franklin Industries Whistleblowing Case is:

Retaliation for reporting an embezzlement fraud

Strong corporate governance relies on a strong board of directors. Which of the following would be a strong candidate to be a board director for XYZ, Inc.?

Retired controller of a Fortune 500 company.

Sarah's concern in the Solutions Network case is:

Revenue was accelerated into an earlier period through channel stuffing

Which of the following is NOT one of the audit committee's responsibilities?

Review all financial reporting judgments

Deontology deals with:

Rights of others and duties toward them

Which of the following is NOT a component of an effective internal control environment in COSO Internal Control - Integrated Framework?

Risk abatement

The method of ethical reasoning that requires selecting the correct moral rule that produces the greatest benefits over harms is:

Rule utilitarianism

What is the main fiduciary duty of the board of directors?

Safeguard the interests of corporation and its shareholders

Which of the following is NOT a safeguard that can help to mitigate threats to independence?

Safeguards performed by the audit firm that are the responsibility of management.

Which of the following is not considered a behavioral indicator of fraud?

Satisfaction with pay

Which of the following author(s) emphasize(s) a "purposeful intervention in the external reporting process, with the intent of obtaining some private gain"?

Schipper

The section of SOX that requires management to prepare a report on its internal controls is:

Section 404

Which of the following elements were NOT part of the fraud at Tyco?

Setting up special-purpose-entities to keep debt off Tyco's books

External auditor communications with the audit committee include each of the following except:

Shareholder returns

To ensure audit committee independence, the committee should meet separately with each of the following groups except:

Shareholders

EY partner Pamela Hartford violated Independence Rules when:

She maintained a personal relationship with a member of company management.

The best way to characterize the role of Sherron Watkins in the downfall of Enron is:

She tried to alert Ken Lay about the accounting scandal at Enron

The accounting shenanigan used in the Dell Computer case can best be described as:

Shifting current revenue from exclusivity payments to a later period

Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?

Shifting current revenue to a later period

The main issue in the Unintended Consequences case is:

Should the student who accepted an offer from one CPA firm back off from that promise in order to accept the offer of another firm deemed more preferable to the student

Which of the following is NOT one of the communications that should be made by external auditors to the audit committee?

Significant deficiencies in audit procedures

The name of the term used to describe issues that are important enough to merit attention from those responsible for oversight over financial reporting is commonly called:

Significant deficiency

Decisions that are made based on the underlying circumstances of a particular matter can be best characterized by:

Situational ethics

Michael Josephson, founder of the Josephson Institute of Ethics, is credited for developing:

Six Pillars of Character

Gabby has just left a meeting with the partner in charge of an audit engagement and was told to ignore the typical year-end accrual entries because earnings are below financial analysts' earnings expectations. Gabby knows this is wrong and wants to act on her values but she does not want to lose her job. What is the best thing for Gabby to do in this situation if she chooses to voice her values?

Speak with the managing partner of the firm

Keesha is the CEO of a publicly-owned company. She was informed by the CFO that the company's earnings were down 30 percent from the prior year due to the recession. The company's stock price has declined by 20 percent. The CFO comes up with a scheme to hide debt and inflate revenues by selling underperforming assets to a special purpose entity affiliated with the company. Keesha is concerned about possible effects on the creditors but ultimately she agrees to the accounting. Keesha is reasoning at:

Stage 3

A client asks his accountant to ignore a mistake which overstated the accounts receivable account. The accountant decides that the accounts receivable account has to be corrected to state the correct amount based on the current accounting rules. Which stage of Kohlberg' Stages of Moral Development is the accounting reasoning?

Stage 4

Rosie is the external auditor of Texas Two Steps, a privately-owned dance company in Texas. Rosie believes the owner of the company is skimming cash off the top. She approaches the owner who explains that the money will be replaced in the following month after he refinances his house. Rosie accepts the owner's explanation but reclassifies the expenditure as a receivable of the company from the owner. Rosie's reasoning best reflects:

Stage 4

Yvonne is preparing a tax return for Jack. Jack wants to claim his nephew as a dependent even though he does not meet the criteria. Jack says if Yvonne does not list his nephew as a dependent, he will fire her and find a new tax accountant. Yvonne refuses because it is illegal to claim a dependent that does not meet the qualifications. Based on Yvonne's decision, she is likely reasoning at which stage of Kohlberg's moral development model?

Stage 4

The results of studies indicate that CPAs reason primarily at:

Stages 3 and 4

Trust in business is important because:

Stakeholders need to feel confident that relationships with organizations will be consistent and reliable

The anchoring tendency relates to:

Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment

Corporate governance structures and relationships are shaped by internal and external mechanisms. Which of the following is an external mechanism?

State and federal statues require a baseline corporate governance system

Which of the following is NOT an element of the auditor's responsibility of the AICPA's auditor's report for nonpublic companies?

States the audit evaluates the overall financial statement presentation

In what situation can an individual be held liable for harm no what their mental state was?

Strict Liability

Which of the following was not an accounting issue in the Sunbeam case?

Swap transactions

Which of the following statements best describes System 2 thinking?

System 2 allocates attention to the effortful mental activities that demand it, including complex computations

Which of the following is NOT an outright restriction on providing nonattest services for an attest client?

Tax services

Tax avoidance transactions are often called:

Tax shelters

What ethical action should Daniel take in A Faulty Budget?

Tell JB about the mistake in the budget so the company can make corrections as soon as possible.

According to Kidder, which of the following is least likely to be a step or checkpoint in ethical decision-making guidelines?

Test for wrong issues

Independence may be impaired when a partner leaves an audit firm and is subsequently employed by the client if:

That partner is in a position to influence the accounting firm's operations

Under the rules of the Sarbanes-Oxley Act of 2002 (SOX), who must certify the public reports filed with the SEC?

The CEO and CFO

Under the Securities Act of 1933, if damages were incurred and there was a material misstatement or omission in the financial statements, the CPA will most likely lose the lawsuit unless:

The CPA rebuts the allegations

Objectivity may be impaired when a CPA prepares a tax return for a client because:

The CPA serves in a tax advocacy position for the client

A CPA can accept a contingent fee in providing tax services for an attest client if:

The CPA's tax services will be reviewed by a taxing authority

One difference between the AICPA auditor's report and that of the PCAOB is:

The PCAOB report does not have section headings

In the Joker & Wild case, the main issue involves:

The accounting manager's misappropriation of assets and writing down inventory for market declines to cover theft.

Which of the following is not true of "reasonable assurance"?

The audit opinion is a guarantee that material misstatements have been identified

Which of the following would normally be considered sufficient to demonstrate due care on the part of the auditor?

The auditor cites adherence to generally accepted auditing standards (GAAS)

Under which of the following set of circumstances might the auditors disclaim an opinion?

The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion

In the PeopleSoft case, the auditors violated what aspect of independence?

The auditor was involved in a business relationship with the client

In the case of Phar-Mor v. Coopers & Lybrand the auditors were found guilty of fraud because

The auditors were grossly negligent and had a blatant disregard for the truth

The purpose of the fraud triangle is to identify:

The causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.

Under the Private Securities Litigation Reform Act (PSLRA), if an auditor concludes that an illegal act with a material effect on the financial statements has been reported to, but not dealt with by senior management, the auditor should next report his/her conclusions to:

The company's board of directors

The ethical conflict in A Team Player can be described as:

The conflict is between Barbara and Haley, and the rest of the team as to whether or not to take the deficiency to Jessica, the audit senior.

The U.S. Supreme Court ruled in State Street v. Ernst that:

The court may "construct" fraud based on gross negligence of the auditor.

The most significant change in the Revised AICPA Code of Professional Conduct is:

The creation of three sections: one for members in public practice, members in business, and one for other members

The cultural value of Individualism reflects:

The degree a society reinforces individual or collective achievement

In an audit, the auditor has a requirement to address risk assessment with respect to:

The design and performance of audit procedures to respond to assessed risks

DeGeorge thinks that "corporations have a moral obligation not to harm." Which of the following would be one of his criteria for morally permitted whistleblowing?

The employee should report a firm's actions that will do serious and considerable harm to others to her supervisor, and keep reporting all the way up to board until the actions are corrected.

All of the following tend to be rationalizations for fraud except:

The employee will be fired unless s/he goes along with the fraud

Section 301 of the Sarbanes-Oxley Act requires

The establishment of procedures to accept employee complaints

The Credit Alliance v. Arthur Andersen & Co. case established three tests that must be satisfied for holding auditors liable for negligence to third parties. All of the following are tests described except:

The identity of the third party must be directly known to the auditor

The auditor's responsibility with regard to illegal acts is greatest when:

The illegal acts have a direct and material effect on financial statement amounts

The Public Interest Principle in the AICPA Code of Professional Conduct recognizes:

The importance of integrity in decision making

The ethical domain in accounting and auditing refers to:

The important constituent groups affected by accounting and auditing work

In the A Team Player case discussed in the chapter, which is the primary reason and rationalization that Barbara may need to counter for not informing Jessica of the inventory deficiency?

The inventory deficiency is immaterial.

In the Lone Star School District case, the auditors were mostly concerned about:

The lack of documentation for travel and entertainment expenses

In Thomas Jones' model of moral intensity it can be said about accounting that:

The link between social consensus and ethical decision making exists because accounting is a community with shared values and beliefs

Using the conventional level of moral reasoning which is most likely the rationalization to Heinz's dilemma?

The needs of the wife needing the drug is considered most.

The objective of an engagement quality review is to:

The objective of an engagement quality review is to:

Auditors are required to communicate with the audit committee for all but which of the following:

The procedures followed by the auditor in evaluating evidence

Auditors are required to communicate with the audit committee all but which of the following:

The procedures followed to comply with generally accepted auditing standards

The KPMG Professional Judgment Framework defines judgment as:

The process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions

In which of the following circumstances would a qualified opinion be appropriate?

The statements are not in conformity with generally accepted accounting principles regarding stock options plans and these misstatements do not have pervasive effect on the financial statements

Which of the following is NOT one of the defenses an auditor can use against third party lawsuits for fraud?

The third party was not in contractual privity

The cognitive development approach refers to:

The thought process followed in one's moral development

Which of the following is NOT a qualitative factor when assessing materiality?

The use of simplistic numerical thresholds and rules of thumb

Kohlberg's model can best be described as:

The various phases in one's moral development and related levels of moral reasoning

The requirement that there should be reasonable support for a tax return position before a CPA recommends it to a client most directly aligns with which tax standard?

There is a realistic possibility of success if the tax position is challenged

Needles suggests that making judgments about what earnings management is becomes difficult because:

There is no clear limit beyond which a choice is clearly unethical

In Grant Thornton v. Prospect High Income Fund, Grant used each of the following points to defend itself against legal liability except:

There was no evidence of the loss suffered by the plaintiffs

Social networking is the norm for many workers, and some workers spend at least 30 percent of their workday linked up to one or more networks. The Ethics Resource Center conducted a survey in which social networkers admitted each of the following except:

They always consider the consequences of their postings on others.

Which of following is false of active social networkers?

They do not discuss company information online.

Accruals are potentially troublesome because:

They provide an opportunity to manage earnings through aggressive or more conservative estimations

In the case of Reisman v. KPMG Peat Marwick LLP, the auditors were found guilty of fraud because

They were aware of misrepresentations that were relied upon by others

The Ultramares v. Touche case of 1933 held that a cause of action based on negligence could not be maintained by a third party who was not in contractual privity; however, it did leave open the possibility that:

Third parties may sue in the case of fraud or constructive fraud

Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results?"

Thomas E. McKee

The conceptual framework in the AICPA Code establishes a:

Threats and safeguards approach to assess whether ethics rules have been violated

Michael has been approached by the CEO of an audit client and offered two tickets to the FIFA tournament at the Olympic Games. The CEO knows that Michael has always wanted to attend the Olympic Games and thought this was a nice way to thank him for twenty-years of excellent professional services. From an ethical perspective in deciding whether to accept the gift Michael should consider whether:

Threats created by the gifts are at an acceptable level

The ACFE found that the most common way that fraud is first detected is:

Tip

The defendant-auditors in the Anjoorian case argued, in their defense, that:

To be found guilty to third parties, the court must find that an accountant had contemplated a specific transaction for which the financial statement will be used and that no such transaction was contemplated.

The International Federation of Accountants (IFAC) Policy Position Paper #4, entitled A Public Interest Framework for the Accountancy Profession was designed to accomplish which of the following?

To better evaluate whether the public interest is being served through actions of the profession.

What was the original motivation by FASB on SPEs?

To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books

One of the contributions of the Treadway Commission Report and the work of the Committee of Sponsoring Organizations (COSO) was:

To identify the tone at the top for management to create an ethical culture

Which of the following is NOT a motivation to manage earnings?

To maximize employee bonuses

In the business world, the term disgorgement means:

To return ill-gotten gains

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1998-2007 periods when business failures due to accounting fraud were high and found that:

Top management was frequently involved in the fraud with the CEO and/or CFO being the most frequently involved

The committee that was formed in 1985 to study and report on the factors that can lead to fraudulent financial reporting is the:

Treadway committee

In the Better Boston Beans case, what is the ethical dilemma facing Cyndie?

Trust of co-worker versus the honesty of the workplace

In FCPA matters, the following would be considered effective compliance program policies except:

Unclear reporting structure for compliance personnel

Which of the following is NOT something the CPA should do in tax planning?

Uncritically accept the client's explanations for assumptions and representations

A CPA would violate the Due Care Principle if he/she:

Undertook a professional engagement without having the requisite background, knowledge and experience.

A threat to replace a CPA or CPA firm because of a disagreement with the client over the application of an accounting principle is:

Undue Influence Threat

Individuals who reason at stage 6 incorporate ethical reasoning based on:

Universal ethical principles

If the financial statements are not materially misstated for a nonpublic company, the auditor should give a(an):

Unmodified opinion

In stage 5 of Kohlberg's model, ethical reasoning is motivated by:

Upholding the rights, values, and legal contracts of society

Which of the following is NOT one of the techniques used by Gemstar TV Guide International in its accounting fraud?

Used channel stuffing to accelerate the recording of revenue into earlier periods

The SEC's complaint in its case against Allergan included a charge that the company:

Used non-GAAP measures to meet EPS estimates

A common method used to smooth net income over time is:

Using accrual of operating expenses and future adjustments

The Blackswan PetFood case deals with:

Using non-GAAP measures of earnings

Greatest good for the greatest number of people is the theory of _________.

Utilitarianism

The basic and fundamental beliefs that guide or motivate attitudes or actions are called:

Values

In the Vertical Pharmaceuticals case, Deloitte & Touche was sued because:

Vertical claimed the firm's false accusations of fraudulent conduct led to the withdrawal of another public company's planned acquisition of Vertical

What is the ethical issue in the Rite Aid Inventory Surplus Fraud case?

Vice Presidents of the company were involved in a material, nine year surplus inventory sales and kickback scheme.

Steve is deep in debt due to a gambling problem. He is the bookkeeper for a family-owned business, Cal Poly Greenery. The company has only three employees - Steve, the husband, and the wife. All three have been friends for many years. One day the loan shark who lent Steve $20,000 comes knocking at his door asking for repayment of the loan. Steve convinces the loan shark to give him another day. The following day Steve writes a check on the company's books to himself for $20,000. Since he reconciles the bank accounts and prepares the financial statements, Steve knows it's unlikely the owners will ever know about what he has done. From an ethical perspective, Steve has:

Violated the trust placed in him by the owners

In the Moral Turpitude case, the primary ethical issue in the case is:

Violation of the acts discreditable

The "Milton Manufacturing" case illustrates:

What can go wrong when a company sets a policy that potentially harms one area of its operations.

In using the GVV framework, questions to pose for dealing with the opposing points of view include all of the following except:

What is the way to appeal all parties?

When would it be appropriate for an auditor to withdraw from an engagement?

When the auditor concludes that management cannot be trusted

During the investigations by the House Subcommittee on Oversight and Investigations, a question that was raised was:

Where were the auditors?

The Navistar International case examines:

Whether Deloitte followed all provisions of the AICPA Code

The Tax Inversion case deals with:

Whether IFRS should be used for all subsidiaries following an acquisition

The SEC approach to independence emphasizes independence in fact and appearance in all of the following ways except:

Whether a conceptual framework approach is used for evaluating ethics violations

The BDO Seidman v. Hirschberg, 93 N.Y.2d 382 case focuses on:

Whether a firm's protective covenants are reasonable in scope.

In the Giles and Regas case, the primary ethical issue can be stated as:

Whether a superior should become involved in a dating relationship with a subordinate

In the Shifty Industries case, the primary ethical issue can be stated as:

Whether an accountant should claim a higher section 179 deduction than allowed by law.

The ethical issue in the Beauda Medical case is:

Whether an audit firm should inform one audit client about malfunctioning equipment at another client that the former plans to buy

Each of the following were themes of Congressional investigations of the accounting profession during the 1970s and 1980s except:

Whether low-balling to obtain audits impairs independence

The ethical dilemma in the TransWays' case can best be described as:

Whether payments made to customs officials are can be properly recorded as facilitating payments

The Family Games case deals with the following accounting issue:

Whether revenue should be accelerated into an earlier period

Did the CPA Violate any Rules of Conduct case focuses on:

Whether tax documents were properly filed with the IRS.

The auditors' determination of whether the financial statements "present fairly" is based on:

Whether the accounting principles used are appropriate in the circumstances

Which of the following is not one of the evaluations of the control environment of an organization?

Whether the company has an anonymous hotline

Gathering and objectively evaluating audit evidence requires the auditor to consider:

Whether the evidence is competent and sufficient enough to render an audit opinion

The Ethical Dissonance Model helps to evaluate:

Whether the organization's ethics aligns with individual ethics

The KBC Solutions case deals with:

Whether the senior in charge of an audit can provide adequate explanations for the accounting for transactions being questioned by the review partner

The ethical dilemma for Ricardo in the Juggyfroot case can best be described as:

Whether to let his failure to object to inappropriate accounting in the prior year influence whether he goes along with inappropriate accounting in the current year.

The ethical dilemma that faces Ronnie Maloney is best described as:

Whether to properly inform the audit committee of critical audit matters

In Han, Kang & Lee, LLC, the main accounting issue being discussed with the client is:

Whether to write-down inventory by 20 percent

The philosophical methods of moral reasoning suggest that once we have ascertained the facts, we should ask ourselves certain questions when trying to resolve a moral issue. Which of the following is NOT one of those questions?

Which course of action maximizes my net benefits?

Research by Miceli and Near indicates that:

Whistleblowers hope their speaking out achieves the correction of an organization wrongdoing

The seven signs of a pending ethical collapse include all but:

Whistleblowing hotline

Under the Securities Act of 1933 and the Securities and Exchange Act of 1934, accountants may be subject to criminal penalties for:

Willful violations of the securities acts

Diane is a CFO at We Do What We Want, Inc. She was just instructed by her boss, the CEO, to accelerate the recording of revenue into an earlier year to meet financial analysts' earnings projections. In order to meet the ethical standards of the accounting profession, Diane must be certain that she:

Works through the chain of command within the company to avoid subordinating judgment

In Tenants Corp. v. Max Rothenberg, the auditors were held legally liable for:

Write-up work

Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox case?

Xerox top management overrode the internal control to manipulate earnings

Which of the following situations would be considered ethical? 1) The cashier at Wal-Mart gives you $5 more than you were supposed to receive and you don't do anything about it 2) You accidentally back into a car at Wal-Mart and leave your information for them to call 3) Receiving fake $20 bills and using them in a store while knowing they are fake 4) Finding a phone in a restaurant and keeping it

You accidentally back into a car at Wal-Mart and leave your information for them to call

Assume you are taking an exam and you clearly see that your friend is cheating. Your professor does not notice it. What is the most appropriate action for you to take if you are an ethical person?

You discuss the matter with your friend after the exam.

Assume you were assigned a term paper and decided to surf the web to identify a provider of papers for a fee. You chose what you thought was the best paper available. With respect to Rest's model of morality it can be said that:

Your actions lack moral sensitivity

A troubling result of the 2013 National Business Ethics Survey is:

a high percentage of misconduct is conducted by management

Impairments of independence can occur when: 1) A CPA owns a direct financial interest in a client 2) A CPA owns a material indirect financial interest in a client 3) Immediate family members of the CPA are in violation of the independence rules 4) all of the above

all of the above

Civility requires all but the following:

disregard

Virtue ethics is:

doing what is right

A difficult choice between two moral principles that are in conflict with one another is known as a/an:

ethical dilemma

A unique aspect of occupational fraud is:

misuse of company assets

During the period of 1986-1995 the failures at savings and loan institutions were caused by:

questionable home mortgage loans and risky investments

The Clawback rule allows:

recovering compensation from CEOs who engage in financial statement misconduct

Utilitarian philosophers are divided into two types: act utilitarian and

rule utilitarian.

In the Reauditing Financial Statements case, all of the following would be appropriate questions to ask a predecessor auditor except:

whether they could obtain the predecessor auditor workpapers